The discussion paper sounded the warning as it reported on views it had gathered around the city over the best way forward for constitutional development.

"There were views that as Hong Kong had a narrow tax base, if universal suffrage was implemented ... Hong Kong might become a welfare state," the paper said.

"There are also views that in other economies with full democracy, governments provide a relatively high level of welfare protection but at the same time they are also capitalist societies," it said.

The paper will be presented today to the Committee on Governance and Political Development. The government says it supports universal suffrage but only in the long term.

Pro-democracy legislators accused the government of trying to scare people away from universal suffrage by suggesting democracy would cost taxpayers more.

"It is absolutely absurd," said Civic Party Legislator Ronny Tong (湯家驊). "The government is trying to equate people who want democracy as people who are opposed to the capitalist system."

"Ninety nine per cent of people in Hong Kong support the capitalist system but also want democracy. It doesn't mean that if we have one-man-one-vote, we will necessarily turn into a socialist state," he said.

However, the government's secretary for constitutional development Stephen Lam (林瑞麟) defended the paper, saying democracy overseas had led to budgetary pressure.

"Overseas where there are systems of universal suffrage and direct elections, political leaders face rather serious public pressures for implementing more public services," he said. "That will have an effect on fiscal prudence and the government's budgetary process."